[BUSINESS] What is the difference between zero based budgeting and activity based budgeting?
Budget is a tool used by the management to do planning and evaluation of organizational activities to ensure those are in order to achieve their stated goals and objectives. Budget can be prepared for short terms (eg: annual or quarter) and long terms (eg: strategic plans). Based on the preparation method and purpose budget is classified in different waysActivity-based Budgeting — Management identifies the actives of the organization which leads t the revenue generation and allocate the resources based on their needs. Like activity-based costing, management should indentify the cost drivers in each activity and allocate resources based on the past experience. This method is mostly used where overhead costs are a significant proportion of operating costs.Zero based Budgeting – Management identifies all the cost elements for each year newly and prepares the budget accordingly. It does not refer the previous year’s budget or actual expenses. Each time it can be started as fresh. Mostly, the newly started firms and project oriented companies use this budgeting method.Major difference in these two budgeting method is an activity based budget use historical data (previous year’s budget or actual expenses) but Zero budget does not consider these data.